Oh Boy, Here We Go Again With the China Trade Deal FOMO
The market is up a full point plus across the board on optimism that the Chinese envoy currently in Washington won’t be leaving the US empty handed on this trip. President Trump will meet with Vice Premier Liu He today at 2:45 p.m. EST. That leaves very little time for the results of the meeting to get out and effect the market. In fact, they may even end up wrapping up the talks at 4:01 p.m. just so the inevitable communication breakdown will not effect the good feels we’ve got going on today. Why not just let the traders go on into Friday happy hour with some frothy gains?
We’ve been here before many times. Given the NBA controversy and the US pension limits on Chinese stocks hinted at earlier in the week, this setup feels a bit too much like an algo-driven pump to me, but who am I to complain? After all, I still keep some of those paper stubs around and everybody likes it when NUMBER GO UP. Like the old male Clinton pol used to say when he was also winning elections with a plurality of voters, “It’s the economy, stupid.”
Truth be told, America is in the driver’s seat on this one. Despite the fact that I myself have never lived in a more inequal United States than it is today (i.e. the rich-poor gap is at a generational high), we are also at generational lows in unemployment rate at 3.5% and inflation has been hovering pretty steadily around the Fed’s magic 2% level for the past year.
In short, we are living in the Goldilocks economy.
China is not.
A decade of freefalling GDP growth rates (Hey! They’re still at like 6% for now). Food shortages (The American soybean industry is almost entirely set up to feed China). Pig flu. A terrible international basketball team (Well, both countries can claim that honor this year). Rising labor costs. Falling exports. Sky high real estate prices. Runaway debt. Everywhere you look in the short term there’s a lot to be negative about in the Chinese economy. Long term is a whole different story. But it’s really hard to sell markets on those long term stories.
China knows they need to make a deal more than America does. Trump is pressing that advantage. But I can’t shake the feeling that somehow after this nice little rally today, it’ll still end up the same: No progress made.
Then we’ll begin The Trade War Cycle anew.
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Great piece. I agree with you. Trump had the advantage from the beginning in spite of what the media states. Right now, China needs the US more than the US needs China.
I spent a number of years following China and everything you point to is accurate. Most look at it as a manufacturing hub not realizing that inflation hit the Chinese wage market a decade ago, forcing companies to look elsewhere (Vietnam).
China is trying to compete by automating but that is an endless chase as the technology simply knows no geographic borders.
Trump likes to parade around about his policies having an impact. The truth is China was not a great story before Trump even took office. The last decade showed a lot of cracks in the facade that need to be dealth with.
The long term outlook for China is bright simply because the political system is geared towards getting things done. The classic example is that in 10-15 years China went from having no high-speed rail lines to more high-speed track (in terms of kilometers) than everywhere else in the world combined. So some of these China stocks are downright bargains. I think the estimates are China will have a $50 trillion economy by 2035? Meanwhile, America has struggled to get just one high-speed connection between SF and LA for 30-plus years. At this point, America's politics may end up strangling it to death. Congress just can't get anything done. And this has been the case, at least as far as I can remember, since Hillary's attempt at health care reform back in 1993. In the long run, that is going to haunt us. We need new infrastructure. We need education reform. We've got to try and do something about the rich-poor gap. But in the short run, none of that matters. We've got the largest economy, the global reserve currency, and gobs of soft power on the international stage... So MAGA!
I agree with you, if a deal is made, it will only be a partial deal...the drama will continue after today because China will never agree to all the terms that Trump wants.
Yeah, it seems like the media has been informed to recharacterize what they used to call "slow progress" as a "partial deal"... Algo bots rejoice!
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